Oxford Economics Cookies

This website uses cookies to give you a better experience. If you continue with your current settings, we'll assume that you agree to receive all cookies from Oxford Economics website. If you don't agree and would like to remove the cookies created by this website you can do it by following these steps.

A leader in global forecasting and quantitative analysis, with the world’s only fully integrated economic model and 200 full-time economists and analysts, Oxford Economics is a trusted advisor to corporate and government decision-makers. We help our clients track, analyse, and model country, industry and urban trends around the world.

Subscription Services

A deep portfolio of research tools to assess the impact of macro events across more than 200 countries, including regularly-updated economic briefings, forecasts, and scenarios. Find out more.

A complete industry forecasting and analysis service with continuous updates for 69 countries and 26 commodities. Find out more.

The most complete set of forecasts available for cities and sub-regions around the world. Find out more.

Oxford Economics is the world leader in global forecasting and quantitative analysis for business and government, and the most trusted resource for decision-makers seeking independent thinking and evidence-based research.

Latest analysis

​Consumer Confidence Index dipped to 119.8 in September from 120.4 in August. Unsurprisingly, The Conference Board noted that respondents in Texas and Florida experienced a drop in confidence related to the hurricanes. However, overall confidence at the national level is still quite solid, underpinned by a strong labor market. Current conditions slipped 2.3 points to 146.1, only just below the near-term peak of 148.4 in August. Consumers remained very upbeat on the road ahead as the six-month expectations nudged up a half-point to 102.2.

New home sales declined 3.4% in August to a SAAR of 560,000, the slowest pace of sales since December. Hurricane Harvey likely contributed to the decline in sales in the South; Harvey and Irma will continue to impact new home sales in the months ahead.

With the reform process in motion, President Emmanuel Macron has put France on a more business-friendly road. This environment has helped foster high business sentiment levels, along with a buoyant economic recovery. The INSEE business climate indicators point to a 0.5% GDP rise in Q3.

Macron will outline his vision of an ever-closer union this afternoon. He is likely to focus on a common Eurozone budget and the need for a European finance minister. Yet with the FDP likely to form part of the next German government, prospects for some kind of debt mutualisation seem overoptimistic for now.

​Presently the Federal Reserve Board of Governors has vacancies for three of itsseven seats. The impending departure of Vice Chair Stanley Fischer in mid-October could leave an already undermanned Board in even leaner condition.However, contrary to common perceptions, the Fed's Board of Governors doesnot need a quorum to conduct monetary policy decisions.

The German election results look set to eventually force parties into an unloved Jamaica coalition. All four parties are pro-European, but two and a half of them are sceptical of a further (fiscal) integration of the Eurozone. The FDP has ruled out a large Eurozone budget. The election points to a more polarised,noisy and less content Germany than economic data would suggest. That leaves Germany more focused on domestic policy and less able to lead in Europe.

The decline of the Ifo index in September still leaves it at elevated levels and follows on improvements in other surveys reported earlier. Overall, sentiment remains consistent with strong GDP growth in Q3.

Angela Merkel will be Chancellor for a fourth term. But her conservative CDU and the centre-left SPD scored the worst results in over 60 years, enabling the anti-immigration, far-right AfD to become the third-largest parliamentary party – a major political upset. Building a coalition will be difficult and could well take as long as three months. This will hold up any major decisions on Brexit. Progress on European integration will be fraught with substantial difficulties.

A CDU-led coalition with the liberal FDP and the centre-left Green party has the potential to give renewed reform impetus in several policy areas. But this combination is untested and compromises that satisfy both smaller parties could be hard to find. European reform could become a stumbling block. Another grand coalition is the only alternative. But the centre-left SPD scored its worst result in modern history and has for now ruled out a new coalition with the CDU. Chancellor Merkel would have to make very substantial concessions.

The UK’s proposal of a transition deal, based on EU rules and seeing the UK continue to make EU budget payments, represents a sensible offer and, provided the detail is acceptable, should elicit a positive response from the EU. In our scenario tree analysis, we have increased the probability of the two sides coming to a deal from 60% to 70%.

The proposals for the longer-term relationship remain strong on ambition but light on detail. And there is still a sense that the UK’s aim of achieving something which sits between the so-called ‘Norway’ and ‘Canada’ options is unlikely to be palatable to the EU who see that as an ‘either/or’ question.

Eurozone PMI figures easily beat expectations in September, reaching a four-month high of 56.7 points. This reinforces the notion that momentum remains very strong in the Eurozone with only a slight moderation in economic activity likely from the peak reached in Q2.

At the sector level, manufacturing continues to shrug off the negative effects posed by the stronger euro, and expanded at the fastest pace since 2011. Activity in services strengthened as well, signalling that the improvement in activity is spreading across sectors.

In the first of our two-part Research Briefing on the implications of Asia-ex Japan’s (AXJ) credit binge, we examine the likelihood of it causing a systemic financial crisis that rocks the region. Our bottom-up assessment, which takes into account economy-specific factors, suggests that the aggregate debt measures do not show the full picture and exaggerate the risks.

A last-ditch GOP effort to repeal the ACA has gained traction. The next days will determine whether this effort has the backing of former repeal opponents. The outline of a tax cut plan is due next week. We look for a less regressive proposal on the individual front, focus on the tax rate on the corporate front and more tolerance for an increase in the deficit. We believe the odds of Congress passing a package this year are around 60%.

At the beginning of the year we had some concerns about the PMI overstating the strength of the global economy. However, our analysis of the four most-used leading indicators suggests that certainly for the Eurozone the PMI remains the best gauge for quarterly GDP growth. Tomorrow’s flash PMI should give us a strong idea of how well the Eurozone performed in Q3. We expect growth to come in at 0.5%, only marginally down from the 0.6% posted in Q2.

​As expected, the BOJ marked the one-year anniversary of the Yield Curve Control (YCC) framework without any policy change. The past year has proven the operational sustainability of the YCC policy and that the BoJ can maintain its target of around 0% even when under pressure from rising global yields.

In our opinion, the current monetary policy stance will not lift inflation to the 2% target. By acknowledging that stronger wage growth is necessary to achieve this, we believe that the BoJ also has its doubts. However, given limited room for further easing, in part due to the likely negative side-effects on financial institutions, we expect that the BoJ will stick to current yield targets even in the probable event of yet another downgrade to its inflation projections.

A strong August for the public finances means that borrowing over the year-to-date is closely tracking the 2016-17 outturn. Higher debt interest payments and the prospect of lower self-assessment revenues mean the second half of 2017-18 is likely to see a deterioration in the year-on-year comparison. But even allowing for this, we would expect the OBR to grant the Chancellor some leeway to loosen policy in November’s Budget.

As we anticipated, the FOMC announced it will commence its balance sheet reduction plan next month. The start of balance sheet reduction should not lead to a sharp rise in long-term interest rates since it has been well telegraphed.

On the interest rate front and also in line with expectations, the FOMC kept the fed funds target range unchanged at 1% - 1.25%. However, the median dot plot estimates signal another rate hike this year, followed by three rate increases in 2018.

We believe rising concerns that the slowdown in inflation could be "persistent" will lead policymakers to forgo additional rate hikes this year and to only raise rates twice (50 basis points in total) in 2018. Further, Hurricane Harvey and Irma are playing havoc with the economic data, obscuring the Fed's view of underlying economic trends. This supports our view the Fed will stand pat this year.

​Existing home sales declined 1.7% in August to a SAAR of 5.35 million. Hurricane Harvey held down sales in the South. Tight inventories continue to constrain sales. Inventories have contracted on a year-over-year basis in every month since May of 2015.

​In our global macro chartbook for September, we summarise our views on current global themes and asset markets. This month, we focus on the further momentum in the world economy; the great rotation in global credit risks; and highlight results from our latest Global Scenario Service, including North Korea.

A 1% monthly rise in retail sales volumes in August was the strongest in four months and capped the first run of three consecutive monthly gains in volumes since 2015.

Admittedly, retail price inflation picked up in the month, suggesting consumers are not out of the woods yet. But August’s growth in sales leaves the retail sector in good stead to make a positive contribution to GDP growth in Q3.

Recent data has been somewhat mixed, but the on-going European recovery and strong domestic fundamentals support a solid outlook for Q3 and Q4. Growth should only slow slightly from the elevated levels in H1 and remain broad-based. At 2.1% GDP growth in 2017 should be the highest since 2011 with the post-election tax cuts posing small upside risks to our 2018 forecast (2.0%).

Housing starts slipped 0.8% in August to a SAAR of 1.180 million. The impact of Hurricane Harvey on housing starts was limited, although Harvey had a bigger impact on housing completions. Building permits increased due to a 19.6% spike in multi-family permits, suggesting there is still some momentum in the multi-family sector.

Angela Merkel is virtually guaranteed a fourth term in office after Sunday’s election. The question now is whether the complacent and dull election campaign is a taste of what’s in store for the next four years and we are pretty sure it is. Our analysis shows that even the promised tax cuts and some spending increases – about 0.5% of GDP – are likely to lack impact and focus.

Merkel’s CDU is unlikely to command an absolute majority and for now we have few indications who the preferred coalition partner is. Another grand coalition with the Social Democrats (SPD) is quite possible. But none of the possible coalitions would suggest ground-breaking change. Voters are mostly concerned about immigrants and integration, but the mainstream parties offer little policy differentiation on these.

Germany has plenty of long-term challenges that need addressing, including a demographic time bomb and European integration. The fact that the economy is in excellent shape though makes it easy enough for politicians to avoid addressing them for now. Instead, they have opted for popular quick fixes which a healthy surplus allows them to do. Most mainstream parties are dangling the carrot of lowering income tax and higher spending.

This will give the German economy a moderate fiscal boost (which cyclically it doesn’t even need) and provides some modest upside risks to our private consumption forecast for 2018. But coupled with a closed output gap and labour shortages, this is more likely to raise price pressure and increase imports than significantly benefit the domestic economy. Lower fiscal surpluses and more imports might shush some of the international criticism of German economic policy.

​The pressure on China’s FX reserves has eased considerably since the start of this year, underpinned by a reduction in financial outflows and a globally weaker US$, which has taken the pressure off the CNY and boosted the value of non-dollar reserve assets.

In our baseline scenario, with the US$ remaining weak globally, we now expect the CNY/US$ rate to strengthen somewhat further to 6.5 (from 6.6 previously) by end-2017 and to continue appreciating modestly in 2018. We do not expect a material relaxation of the policy stance on outflows any time soon, given still sizeable net financial capital outflows. In all, we expect FX reserves to remain broadly constant over the coming 6-9 months.

The increase of the ZEW index along with the earlier Sentix indicator sets an encouraging tone for the September round of sentiment data. They suggest the upcoming composite PMI might have inched up after recent declines from cyclical highs and despite the appreciation of the euro. Overall, it appears that the #Euroboom has more room to run even if growth looks likely to moderate from the high levels in the first half of 2017.

Easing concerns over the cyclical position of the Eurozone could help to focus policy makers’minds on more structural issues. After the upcoming federal election in Germany on Sunday, discussions of further steps to integrate the Eurozone are set to pick up. Although there are plenty of other areas where structural reforms would be welcome as a new ECB analysis shows.

The French economy continues to make steady progress in a self-sustaining phase of the growth cycle. After Q2 GDP growth of 0.5%, current surveys and initial hard data for Q3 point to another 0.5% expansion, which would be the fourth quarter in a row. Nonetheless, following downward revisions to historical data, we have revised our 2017 GDP growth forecast down to 1.7%. But, as industry and services continue to see rising capacity pressures, investment is likely to expand further. Meanwhile, household spending should accelerate on the back of a renewed drop in inflation and further rises in employment.

​We look for the FOMC to announce on Wednesday that it will commence its balance sheet reduction plan next month. The announcement and implementation of balance sheet reduction should not lead to a sharp rise in long-term interest rates since it has been well telegraphed.

We do not expect the FOMC to change the fed funds target range of 1% - 1.25%. In fact, we anticipate that Fed officials will forgo any additional interest rate hikes this year due to low inflation readings, notwithstanding the latest August CPI reading.

A key focus will be on the FOMC's view of recent inflation readings and its degree of conviction about whether inflation will hit the 2% target over the medium-term. This in turn will underpin the committee's decision about raising rates further this year and the pace of rate increases next year.

While many on the FOMC continue to assert that the slowing in the pace of inflation is due to "idiosyncratic factors", notable doves on the FOMC have raised concerns that inflation may continue to undershoot the 2% target. Despite the recent jump in the August CPI reading, we look for inflation to remain below its target through 2018.

China’s key role in driving the improvement in world GDP growth over the past year has helped trigger more dynamic growth in advanced economies. There are signs that advanced economies’ strong performance is becoming more self-sustained. This implies that the solid performance in H1 can extend into H2 and perhaps beyond, which could have a positive impact on other regions.

The pace of growth picked up in Q2, with the economy matching our forecast and expanding 0.8% q/q. Government spending drove domestic demand, with current consumption rising 1.2% and government investment up a whopping 11.9% (though this is partly attributable to an asset purchase from the private sector). Export volumes also recovered from their disappointing start to the year, with net exports adding 0.3% points to growth. Consumer spending accelerated slightly, to 0.7% q/q, but private investment disappointed again; business investment dropped 2.1%, while residential spending recorded a surprisingly small 0.2% rise after a rain-affected Q1. Historical data revisions mean we now see GDP growth this year at 2.2%, down from 2.5% last month.

​A pick-up in domestic oil exports and another strong month in non-oil domestic exports drove good export volumes higher in August. And while imports also accelerated, the external sector is on track to make a solid contribution to Q3 GDP growth.

The latest PMI surveys continue to signal relatively strong demand, notably in the electronics sector. However, we do look for growth to moderate as we head into 2018 as Chinese demand eases. Less favourable base effects are also likely to see oil exports weigh on the headline figure.

Despite a modest pick-up in real estate activity, overall growth momentum continued to ease in August on weaker exports, investment and consumption. We expect external demand growth to moderate further over the rest of the year and that of domestic demand to cool as the impact of the move to a less accommodative monetary policy takes hold. Overall, we maintain our 2017 full-year GDP growth forecast of 6.8% and expect 6.2% in 2018.

​We
see the US economy continuing to grow around 2% underpinned by moderate
consumer spending, firmer business investment and a brighter global backdrop.
Hurricanes Harvey and Irma will shave a combined 0.6pp off growth in Q3. We
expect a modest fiscal stimulus package will lead GDP growth to accelerate to
2.4% in 2018 – though policy uncertainty remains an important downside risk.
Soft inflationary pressures due in part to still-moderate wage growth will limit the Fed's willingness to proceed with
additional rate hikes this year. However, balance sheet normalization is set to
start in October. ​

​August industrial production dropped a sharp 0.9%, the largest one-month decline since May 2009. The Federal Reserve estimated that almost all of this decline, about 0.75pp, was attributable to dislocations associated with Hurricane Harvey. Much of the weakness will be reversed in the September data, but as Harvey wanes Hurricane Irma will impose a drag of its own on the data. It will take some time for the markets and policy-makers to fully understand underlying economic trends.

​A weak August retail sales report as the pace of sales in August undershot expectations, following downward revisions to the prior two months. August sales fell 0.2% overall and excluding autos were up just 0.2%. The Census Department could not isolate the impact of Hurricane Harvey on the August sales data, which could have had a negative impact. The sales data along with the strong gain in August consumer prices point to less real consumer spending activity in Q3 than previous estimated. Consumer spending in Q3 could now be 1.5% - 2% versus our prior estimate of 2.5%, which would lower our Q3 real GDP forecast to 2.1% from 2.5% previously.

GDP growth moderated in Q2 following a strong outturn in Q1, and early indicators suggest that the second half of the year has begun on a soft note. Household incomes are being squeezed by a combination of a softening labour market, modest wage growth, and elevated inflation. Construction activity is moderating in line with a cooling housing market, with the government introducing further macroprudential regulations in August – the third time in the last year – in an attempt to stabilise the market and rein in household debt.

The Central Bank of Russia (CBR) resumed its easing cycle after a three-month pause, cutting its main policy rate by 50bp to 8.5% as widely expected.

But it also sounded a note of caution, which we interpret to mean a shallower pace of rate cuts in the future. We see scope for another 25bp cut before the end of the year, and for the policy rate to fall to 7.25% by end-2018.

The latest wage and compensation data suggest that the absorption of spare capacity has produced some wage pressure, which supports a robust outlook for consumption. However, the steep acceleration in some wage indicators likely overstates the underlying momentum and is unlikely to sway the ECB from a very cautious approach to its exit from asset purchases.

Eurozone exports in July continued the batch of disappointing hard data for early Q3. While sentiment strongly suggests that this weakness should remain temporary, it supports our expectation that GDP growth will ease a little in Q3. The round of August hard data will help to determine the extent of any slowdown, but will not be released until early October.

A speech this morning by external MPC member, Gertjan Vlieghe, reinforced the hawkish tone of the Committee’s September meeting. Vlieghe, previously a noted dove, placed himself as one of the majority of MPC members who judge that a rate rise may be necessary “in the coming months”.

But while flexibility on the part of MPC members is to be welcomed, the case for tighter policy based on supposedly diminishing slack and rising wage growth is a slim one. A hike in Bank Rate in November still strikes us as unlikely.

EM central banks and governments have this year become the biggest buyers of US Treasuries, a trend that is likely to continue for a while. Our detailed analysis reveals dramatic shifts in global sources of demand for USTs since 2008. Yields so far remained very low in the face of such volatility, but could rise if renewed EM outflows were triggered by prospects of a stronger dollar.

The trade balance sprang back into surplus in August as nominal export growth outpaced imports. But both export and import momentum slowed, in line with our expectations. Moreover, import growth dynamics reinforce the impression that domestic demand remains relatively sluggish and, at the margin, poses a risk to our view that there will be a prolonged pause in monetary policy (rather than another cut in interest rates after the move in August).

Termination of the Deferred Action on Childhood Arrival (DACA) program could result in 720,000 lost jobs and $100bn in foregone economic output over five years. The drag on GDP growth would be about 0.1pp per year starting in late 2018. The regional impact would be disproportional with California at risk of losing 200,000 jobs and 0.9% of gross state output (GSP) over five years. Similarly, 115,000 jobs and 0.7% of GSP is at stake in Texas. Passage of the DREAM Act by Congress could avoid or mitigate the adverse economic impact, and it appears the president is willing to support a bill in exchange for greater border security funding (but excluding the wall).​

Inflation surprises to the upside, but hurricane related surge in gasoline prices will prove temporary. Consumer prices rose 0.4% in August on a 6.3% jump in prices at the pump while core prices rose 0.2% on higher shelter costs. Headline inflation temporarily bounced back to 1.9% y/y, but core inflation remained at 1.7%y/y. The Fed is likely to look through this one-off price increases and focus on trend inflation which remains below its target. As such, we expect the Fed to forgo any further rate hikes in 2017, but to start normalizing its balance sheet next month.

​Unexpected pockets of credit risk, chiefly in property-backed securities, greatly exacerbated the financial crisis of 2007-10. Our survey of areas of credit risk today does indicate some potential danger zones – in particular, high-yield corporate debt and, to a lesser extent, US commercial property. But looking at areas like auto loans, credit card debt and ETFs we do not find any that could trigger dangerous systemic risk as subprime mortgage debt did a decade ago.